LOS ANGELES—A lingering housing shortage will continue to fuel rent increases for the next two years across Southern California, according to an annual USC study released on Dec. 3.

According to the Casden Real Estate Economics Forecast released by the USC Lusk Center for Real Estate, vacancy rates remain low at Southern California rental properties, hovering around 5 percent in Los Angeles County and 4 percent in Orange County.

The forecast noted that rent rose by just 0.5 percent in Los Angeles County this year, settling at an average of $2,336 as of October, according to the report. The vacancy rate was listed at 5.37 percent as of October. The report’s authors predicted that the average rent will rise by 0.64 percent over the each of the next two years, reaching an average of $2,350 by October 2027.

In Orange County, the average rent as of October was $2,776, with a vacancy rate of 3.84 percent. The report forecast annual rent growth of 2.52 percent in the county, with the average rent reaching $2,859 by October 2027, and the vacancy rate rising to 4.21 percent.

“Housing affordability keeps shrinking for the people who need it most. The most data-backed solution is obvious: we need more housing,” forecast author Moussa Diop, associate professor of Real Estate at the USC Sol Price School of Public Policy, said in a statement. “Beginning with the 2008 downturn, the US lost the production capacity needed to meet long-term demand. We can build back, but it’s going to take an all-hands approach.”

The report cited a number of factors likely contributing to a slowdown in housing production, including rising federal debt, a potential stock market correction fueled by AI investments and elevated interest rates.

Researchers also noted that states such as Texas and Florida, which have been attracting California residents, are building at much higher rates.

“Rent control or subsidies may offer short-term relief, but without new supply, these policies only entrench the problems they seek to solve,” Diop said. “San Diego shows what’s possible: in just five years, it built enough supply to make average rents cheaper than in Orange County after years of similar prices. We'll soon see whether CEQA (California Environmental Quality Act) reform improves the reliability of infill development.”

According to the report, San Diego County’s average rent in October was $2,535, with a vacancy rate of 5.54 percent. The report predicted rent will grow slightly in San Diego County, reaching an average of $2,563 by October 2027, and the vacancy rate dipping to 5.18 percent.

The report noted that San Diego County added nearly twice as many housing units than Orange County over the past five years, helping to limit rent growth.